Roe v. Gray

• Decision Date: 10 October 2001
• Docket Number: No. CIV. A. 01-B-0409.,CIV. A. 01-B-0409.
• Parties: Timothy M. ROE, on behalf of himself and all others similarly situated, Plaintiff, v. Phillip A. GRAY, an individual, American Fair Credit Association, Inc., a Colorado corporation, United Insurance Companies, Inc., a Delaware corporation, United Membership Marketing Group, LLC, a Colorado limited liability company, XYZ, Household Bank (SB), N.A., and Household Credit Services, Inc., Defendants.
• Court: U.S. District Court — District of Colorado

Page 1164

165 F.Supp.2d 1164

Timothy M. ROE, on behalf of himself and all others similarly situated, Plaintiff, v. Phillip A. GRAY, an individual, American Fair Credit Association, Inc., a Colorado corporation, United Insurance Companies, Inc., a Delaware corporation, United Membership Marketing Group, LLC, a Colorado limited liability company, XYZ, Household Bank (SB), N.A., and Household Credit Services, Inc., Defendants.

No. CIV. A. 01-B-0409.

United States District Court, D. Colorado.

October 10, 2001.

Jane Michaels, Holland & Hart, LLP, Denver, CO, for Timothy M. Roe.

Carolyn J. Ratner, Morrison & Foerster, United States District Court, Denver, CO, Richard P. Kissinger, Kissinger & Fellman, P.C., Denver, CO, for American Fair Credit Ass'n.

Frederick J. Baumann, Douglas B. Tumminello, Rothgerber, Johnson & Lyons, LLP, United States District Court, Denver, CO, for United Ins. Companies, Inc.

Stewart McNab, Stewart McNab, Atty at Law, Denver, CO, for United Membership Marketing Group, LLC.

John A. DeSisto, Matthew D. Collins, Featherstone DeSisto LLP, Denver, CO, for Household Bank (SB), N.A., Household Credit Services, Inc.

MEMORANDUM OPINION AND ORDER

BABCOCK, Chief Judge.

Plaintiff brings claims based on violations of the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq. ("CROA"), the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., as well as a breach of contract claim and a request for declaratory judgment. There are currently seven pending motions. Defendant Household Bank (SB), N.A. and Household Credit Services, Inc. (collectively, "the Household Defendants") move to compel arbitration. Defendants Phillip Gray, American Fair Credit Association, Inc. ("AFCA"), and United Insurance Companies, Inc. ("UICI") have filed notices that they have petitioned the United States District Court for the Eastern District of North Carolina to compel arbitration in this matter. In addition, all of the Defendants have filed motions to stay proceedings in this case pending arbitration. Plaintiff Timothy Roe opposes all of the motions. Moreover, Plaintiff has filed two motions for expedited discovery on the limited issue of arbitrability. The first motion is directed at Defendants Phillip Gray, AFCA, UICI, United Credit National Bank ("UCNB"), and United Membership Marketing Group ("UMMG")(collectively, "the AFCA Defendants"); the second motion is directed at the Household Defendants. All Defendants oppose the motions for expedited discovery. The motions are adequately briefed and a hearing on Plaintiff's motion for expedited discovery was held on October 5, 2001. The motions for stay were addressed at oral argument as integral to the question of expedited discovery. Further oral argument would not materially aid the determination of the other motions. For the following reasons, I deny without prejudice the Household Defendants' motion to compel arbitration, grant all of the motions to stay the proceedings, and deny without prejudice Plaintiff's motions for expedited discovery directed to the AFCA and Household Defendants.

I. Background

Defendant AFCA is a membership organization which purports to help financially troubled Americans regain their credit standing by means of credit education, credit access, and discount savings opportunities. AFCA promises people that if they join, AFCA will sponsor them for a credit card available only to AFCA members ("AFCA credit card").

All of the Defendants have a connection to AFCA. The claims against UCNB and the Household Defendants arise out of their status as issuers, at various points in time, of the AFCA Visa Card. According to the Complaint, Defendant UMMG provided services to AFCA and its members. The Complaint also alleges that UICI was the owner and controller of UMMG and UCNB. Defendant Phillip Gray is an AFCA representative. Additionally, the Complaint alleges that "Defendants, and certain or each of them, were the agents, joint venturers, partners, or representatives of each other ...." Complaint at ¶ 14.

Plaintiff joined AFCA in April 1997 by signing AFCA's Membership Agreement. The costs of AFCA membership and the AFCA credit card consist of an AFCA initiation fee of $39, monthly AFCA membership dues of $39 during the first year of membership, and a credit card fee of $55. In order to resign from AFCA membership, a person must give 90 days prior written notice by hand delivery or certified mail at AFCA's offices in Lakewood, Colorado. During those 90 days, the member must continue to pay AFCA's monthly dues.

At the time Plaintiff signed the AFCA Membership Agreement, it did not contain an arbitration provision. See AFCA's Motion to Stay, Exhibit B-1. However, the Agreement did contain a provision allowing for subsequent amendment of the Membership Agreement. See id. ("This Contract may be amended or modified only by an instrument in writing.").

In January 1998, AFCA mailed to all of its members a proposed amendment to the Membership Agreement, which was entitled "Arbitration of Disputes Agreement" ("AFCA Arbitration Agreement"). See AFCA's Motion to Stay, Exhibit B-2. The letter accompanying the proposed amendment informed existing members that they had the option to reject the proposed amendment by giving written notice canceling their membership. See AFCA's Motion to Stay, Exhibit B-4. AFCA waived the 90-day notice provision for canceling membership for those rejecting the arbitration amendment. See id. The letter specifically informed members that "by continuing AFCA membership ... you have agreed to abide by the [AFCA Arbitration Agreement]." Id.; Weseloh Declaration at ¶ 8. Plaintiff did not object to the amendment and continued to participate in the AFCA program. See Weseloh Declaration at ¶ 9.

The AFCA Arbitration Agreement requires all disputes relating in any way to the Plaintiff's membership in AFCA to be arbitrated in the state where the claimant lives. See AFCA's Motion to Stay, Exhibit B-2. In this case, Plaintiff lives in North Carolina. Under the AFCA Arbitration Agreement, the AAA Commercial Arbitration Rules apply. See id. The AFCA Arbitration Agreement prohibits an arbitrator from changing or altering the terms of the AFCA Membership Agreement, including the arbitration provision. See id. It says nothing about the allocation of arbitration fees and costs, except that "provided your Dispute is not clearly frivolous, AFCA will advance the second $100 of the filing fees for any Arbitration which you may file against us." Id. In addition, the AFCA Arbitration Agreement states that the consumer will bear "all costs and expenses, including reasonable attorney's fees" if the AFCA member "fails to submit to Arbitration following a proper demand to do so." Id. The AFCA Arbitration Agreement also states that members are prohibited from participating in a class action against AFCA. See id.

Plaintiff applied for and received an AFCA Affinity Visa Credit Card in April 1997, which was issued by Bankfirst. In connection with Plaintiff's application for credit, Plaintiff received a Bankfirst Visa Cardholder Agreement, which governed the credit relationship. The Bankfirst agreement expressly informed the cardholders that Bankfirst had the right to modify the agreement "by mailing notice of the modification" to the cardholder. Kuiper Declaration, Exhibit C at ¶ 9.

In December 1997, Bankfirst notified all of its AFCA Visa cardholders, including Plaintiff, of certain changes to the Cardholder Agreement, which were to be effective January 25, 1998. Kuiper Declaration, Exhibit D. The changes included the adoption of an arbitration clause ("Bankfirst Arbitration Agreement"). See id. In addition, the Notice informed cardholders of their right to reject the arbitration provision, provided specific instructions for rejecting the arbitration provision, and informed cardholders that use of their card after the effective date would be deemed acceptance of the arbitration provision. See id. Plaintiff did not reject the arbitration provision. See Kuiper Declaration at ¶ 14. Instead, he continued to use his Bankfirst credit card. The arbitration provision stated that either Bankfirst or the cardholder could elect to have a dispute resolved by arbitration. See Kuiper Declaration, Exhibit D. "Dispute" was defined as "any claim or controversy of any kind which arises out of or is in any way related to [the Bankfirst Cardholder Agreement]." See id. The arbitration would be administered by the American Arbitration Association ("AAA") in the state of the cardholder's residence. See id. Each arbitration would be governed by the FAA and the laws of the state of South Dakota. See id.

In June 1998, Defendant UCNB acquired a portfolio of credit card accounts, including Plaintiff's account, from Bankfirst. See Kuiper Declaration at ¶ 16. UCNB continued to provide credit under the Bankfirst Cardholder Agreement. See id. at ¶ 17. In Fall 2000, Household purchased a portfolio of credit card receivables from UCNB, including Plaintiff's account. In November 2000, Household sent the UCNB credit card holders whose accounts it purchased, including Plaintiff, a letter announcing the transfer of the accounts to Household and making certain changes to the terms on which Household would continue to extend credit to the UCNB cardholders. See Plaintiff's Response to Household's Motion to Compel at Exhibit B. The changes included a provision that, effective immediately, the law governing the parties' contract would be federal law and the laws of the state of Nevada (Household Bank's principal place of business). See id.

In January 2001, Household provided Plaintiff and other UCNB cardholders with a cardmember Agreement and Disclosure Statement, which replaced the UCNB/Bankfirst Cardholder Agreement. See id. at Exhibit D. The Household Cardmember Agreement explained that: "This is a replacement to your United Credit National Bank Cardholder Agreement and is effective upon...